Sooner or later the conservative forces of our world that are turning a blind eye to climate change are going to wake up and realise that climate change and economic disruption are one and the same thing.
Wars, falling global productivity, supply chain constraints, rising costs, maybe even the rise of the far right in a number of countries including our own, are a result of a stressed planet and the rising costs of living on it.
Otherwise, why would the RBA be concerned, and the Productivity Commission likewise? As we heard from Karl Mallon from the Climate Risk Group for our briefing ahead of the Nature First & Resilient Cities event on 24th this month.
If you doubt the concern listen to what economist Timothy Neal from University of New South Wales says in this podcast. It’s from another of our speakers Nathan Robertson-Ball in his Finding Nature series, a treasure trove of deep thinking, long form conversations on a flywheel of climate and sustainability related topics.
Neal has some interesting fuel to throw on the dying embers of care about climate coming from many econocrats and BAU people running our world.
When economists forecast the impact of climate change on economies, they often get a lot wrong, Neal says. They take readings from present times and project forward rather than the readings that might have come through the system had climate change not already had an impact.
This results in assumptions that when climate disasters happen, their own economies will more or less sail through – the “no material impact” scenario.
But this fails to take account of the knock-on effects that we’ve been focusing on with this event, with most (all?) disruptions able to be traced back to a desperate grab for shrinking natural resources including oil (not all of nature is benign) or climate catastrophes such as drought (Syria for instance).
The results are not just fuel prices going through the roof but also fertiliser, which we must import entirely to grow our food. Who knew?
Luke Heilbuth of BWD Stratigic, who will talk to some of the megatrends reshaping the globe, says that Australia shut down its only urea plant, at Gibson Island, in 2022. See this Conversation article about the impact for farmers and our food security, in a country that CSIRO says can feed 100 million people and should be one of the most food secure nations in the world.
Neal says stagnant labour and agricultural productivity happen to coincide with rising global temperatures. But are these a coincidence?
The question led him to work on a model, funded by the NSW Net Zero Commission, that tackled some strongly held shibboleths that climate change is separate from the cost of living (and defence, health, education and so on).
Economists tend to work out impacts by looking at historic economic growth then at historic weather impacts, he says.
They then run regressions to understand how the two things are related. “So, if I can posit how the world’s weather might have evolved over the last few decades if there was no radiative forcing, then I have a plausible counterfactual scenario, and from my model I can then learn what economic growth, according to the model, would have been if there was no radiative forcing from greenhouse gas emissions.”
The answer he says is that in NSW the medium impact is about negative 18 per cent. So our income looks like being 18 per cent less than what it would have been without climate change. That’s a lot of housing and other goodies we might have been able to afford but now can’t.
In the same way the positive impacts of pollution controls are not generally measured – lives saved, illnesses avoided – people don’t think in positives gained or negatives avoided from good – or bad decisions in the past.
Another problem is that climate disasters have been regionally based. So a flooding disaster at Lismore in northern NSW has a dreadful effect on the region but not on the nation as a whole. This is because the costs can be absorbed by the government and spread over a several years so the impact on the GDP shows up as minimal.
In the same way, a country experiencing crop failure in a vulnerable part of the world may be able to source food from another part of the world that’s remained stable, at more or less normal prices, thanks to globalisation, Neal says.
But if big swathes of the globe are affected by climate change at the same time, the smoothing effects from globalisation will diminish (or disappear altogether if current trends continue.)
Getting a handle on these ideas and ways of doing economics with climate change factored in, makes sense.
Right now, climate change is often seen as a “luxury good” says Neal, or a lesser need compared with the urgency of feeding your family.
“You tend to think of it as an issue for future generations without asking how it’s affecting your budget now”, he says.
The impacts of climate change are already baked in, he says.
And yes, it’s time to remove those heads from the sand and do the maths, properly. If the pollies keep telling us at election time “It’s the economy, stupid”, they should switch to saying “It’s the climate, stupid.”
